In Pricing Greenhouse Gas Emissions: The Impact on Canada’s Competitiveness, authors Chris Bataille, Benjamin Dachis and Nic Rivers note there is a growing consensus that if serious action is to be taken to reduce greenhouse gas emissions in Canada, a price must be applied to emissions through a cap-and-trade system or a carbon tax. The authors look at a number of scenarios of how Canada’s climate policy might coexist with the rest of the world, how certain sectors are likely to be affected by carbon pricing and what governments can do about it.

Overall, they find that competitiveness impacts associated with climate change policy in Canada are likely to be relatively small for most sectors of the economy, with the exception of the following sectors: oil and gas extraction and processing, pulp and paper, metal smelting, chemicals, cement and lime production.

One concern, they note, is that measures Canada might take to reduce GHG emissions may be partly offset by the relocation of Canadian industries to countries that lack tough climate change policies – an effect known as emissions “leakage.” Such leakage, they find, would be relatively small: for every 5 megatonnes of CO2 that is reduced by Canadian industry, only 1 tonne would be leaked abroad. Any leakage would also be primarily to the United States, rather than to developing countries, meaning that a joint Canada-US approach would largely eliminate both the potential for leakage and overall competitiveness issues.